Crude oil demand during this quarter will likely register the largest decline on record, larger even than the slump that accompanied the 2008 financial crisis, IHS Markit has forecast.
The market research firm unsurprisingly attributed the slump to the decline in economic activity resulting from the coronavirus outbreak, calling the situation in China, where the outbreak started, “an unprecedented stoppage” of economic activity.
With pretty much every industry suffering the blow of the outbreak, IHS Markit said it expected oil demand to drop by as much as 3.8 million bpd this quarter, to 96 million bpd.
This is bad news for OPEC, which is meeting today and tomorrow in Vienna to discuss additional cuts of 1 million bpd, which would bring their total cuts to 2.7 million bpd. Adding to this the more than 1 million bpd decline in Libyan oil production because of the oil port blockade, and the cartel would, part voluntarily and part forcibly, reduce its production by the same rate as IHS forecasts demand will fall.
This means that oil prices won’t change much because OPEC production would be largely in line with global oil demand at the time. This is certainly disheartening as Gulf economies are beginning to feel the pinch of the coronavirus outbreak beyond oil already.
Meanwhile, OPEC appears to be split on how much to cut, further complicating the price situation. Libya is against further cuts calling them illogical, while Saudi Arabia, which needs much higher oil prices to balance its budget, is pushing for cuts of over 1 million bpd on top of the Libyan production outage.
Russia is waiting for the last moment to announce its decision of whether it will take part in this round of cuts or sit it out.
In this situation of uncertainty, one thing seems to be almost certain: the fallout of the epidemic that began in Wuhan, China, last December will be severe and extended, affecting all industries across the world.
By Irina Slav for Oilprice.com
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